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Broker's take: RHB downgrades Golden-Agri to 'sell' on weak fiscal 2018 performance

ANALYSTS at RHB Research Institute have downgraded their call on mainboard-listed Golden Agri-Resources to "sell" and slashed the target price of the stock from S$0.39 to S$0.23, citing the commodities firm's weak fiscal 2018 performance.

That said, RHB expects fiscal 2019 to be a better year for Golden Agri though it will take "some time" for the company's bottom line to recover to what the brokers say is its previous base of over US$200 million.

"This will likely be after the company revamps its landbank via aggressive replanting and cost management," RHB said. 

For the first nine months of fiscal 2018, Golden Agri reported a net loss of US$18.5 million compared with US$101 million for the same period in fiscal 2017. This was due mainly to lower crude palm oil (CPO) prices, weaker refining margins and losses incurred at its oilseeds division in China due to the effects of US-China trade tensions.

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But, for the fourth quarter, the analysts expect a turnaround on continued year-on-year growth in "fresh fruit bunches (FFB) output and lower unit costs, as the bulk of its fertiliser application was completed in the first nine months of fiscal 2018".

"Refining margins should also improve slightly quarter on quarter, on lower CPO prices, while the oilseed division had already turned around in Q3."

In its forecasts for fiscal 2019 and 2020, RHB analysts project FFB growth to normalise to 3 per cent year on year, below Golden Agri management’s guidance of 5 per cent.

They attributed lower FFB forecast growth to the commodity firm's aggressive replanting programme for its palm oil trees.

RHB said: "This is aimed at rejuvenating its tree age profile, which is currently at around 16 years on average. We believe a more significant impact from the aggressive replanting activities will only be seen three to four years later."